Walt Disney Co. Chief Executive Bob Iger returned to the earnings stage Wednesday and delivered a big beat, largely thanks to improving financial results at Disney’s theme parks, but Disney+ subscribers declined more than expected.
Then he dropped a reorganizational bomb: 7,000 layoffs; the creation of three core business segments — Disney Entertainment, ESPN and Disney Parks, Experiences, and Products — and cost savings of $5.5 billion that will not touch content. The major reorg news sent Disney shares up 9% in after-hours trading.
“This reorganization will result in a more cost-effective, coordinated, and streamlined approach to our operations, and we are committed to running our businesses more efficiently, especially in a challenging economic environment,” Iger said in a conference call with analysts late Wednesday. “While this is necessary to address the challenges we’re facing today, I do not make this decision lightly.”
“First, reductions to our non-content costs will total roughly $2.5 billion, not adjusted for inflation; $1 billion in savings is already underway,” he added, in targeting a return to profitability by the end of 2024.
“Disney’s restructuring to align creative and [profit and loss] decisions and the plan to reduce costs and entertainment content spend without sacrificing growth is credit positive,” Neil Begley, senior vice president for Moody’s Investors Service, said. “We forecast the company reducing leverage to levels appropriate for its A2 rating by approximately the end of calendar 2024.”
Disney
DIS,
posted fiscal first-quarter net income of $1.28 billion, or 70 cents a share, on sales of $23.51 billion, up from $21.8 billion a year ago. After adjusting for restructuring charges, amortization and other effects, Disney reported earnings of 99 cents a share, up from 63 cents a share a year ago.
Analysts surveyed by FactSet had on average expected adjusted earnings of 78 cents a share on revenue of $23.44 billion.
“After a solid first quarter, we are embarking on a significant transformation, one that will maximize the potential of our world-class creative teams and our unparalleled brands and franchises,” Iger, who returned as CEO in November to replace Bob Chapek, said in a statement announcing the results. “We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges,
and deliver value for our shareholders.”
Disney shares rose 2% in after-hours trading immediately after the results were released, then shot higher after Iger announced the cuts. They ended the regular session up 0.1% at $111.75.
During a highly anticipated earnings call, analysts peppered Iger with questions on his plan to fix the storied brand and set it on a path to profitability. Many of their questions were preemptively answered by Iger’s aggressive plan.
“We are going to take a very hard look at costs,” Iger said on the call. He ruled out spinning off ESPN.
The first earnings report since Iger’s return late last year — and his 59th overall as Disney CEO — offered an encouraging look into the embattled company’s immediate future as it confronts a hostile proxy fight from billionaire investor Nelson Peltz, cutbacks, a battered stock and rising competition in streaming from Apple Inc.
AAPL,
Netflix Inc.
NFLX,
Warner Bros. Discovery Inc.
WBD,
Amazon.com Inc.
AMZN,
Comcast Corp.
CMCSA,
Paramount Global
PARA,
and others.
Disney’s largest business segment, media and entertainment distribution, reported sales of $14.78 billion in the quarter, up slightly from $14.59 billion a year ago; analysts on average predicted $15.4 billion. Direct-to-consumer sales, which includes streaming services as well as some international products, brought in $5.3 billion, compared with analysts’ forecast of $5.44 billion on average.
Disney+ ended the quarter with 161.8 million subscribers, a decline from three months ago, when the streaming service had 164.2 million subscribers. Analysts expected the subscriber count to decline after Disney increased costs for ad-free streaming while adding an ad-supported option, but not that much — the average analyst estimate called for 162.68 million subscribers, according to FactSet.
Disney’s television networks generated sales of $7.29 billion, while analysts’ average estimates called for $7.4 billion. Content sales and licensing, a category that includes Disney’s film business, registered revenue of $2.46 billion vs. analysts’ expectations of $2.76 billion.
The company’s iconic theme parks and product sales business increased to $8.74 billion in revenue from $7.23 billion a year ago. The average analyst estimate was $6.6 billion.
Disney executives typically provide a forecast in their conference call following the release of the results. That event is scheduled for 4:30 p.m. Eastern.
Shares of Disney have dropped 24% over the past year, while the broader S&P 500 index
SPX,
has fallen 10%.
